tech-giants-business-models

How Do Tech Companies Make Money? Visualizing Tech Giants Business Models

In the last years, I had the chance to devote most of my waking hours to think about a big issue for any business: distribution.

The way a company structures its operations become vital to its long-term ability to create value. In fact, the business model is an essential part of any business.

Often, especially in the start-up world, there is the belief that a great product or service is all you need. However, that is not the case.

In fact, the tech giants listed in this article all mastered distribution. There is no doubt that each of them has excellent products and offer incredible services.

However, without a proper distribution strategy, their success wouldn’t have been possible.

Apple: It’s all about the iPhone

Apple’s business model is based on the sales of products. It undeniable that the value of those products is based on Apple’s ability to create a friendly environment for its products.

Had the Apple store not existed, would have Apple managed to sell over 77,316 iPhone and 13,170 iPad in 2017 alone? I doubt it!

Revenues in Bln ($)
iPhone 141,319 61.6%
iPad 19,222 8.4%
Mac 25,850 11.3%
Services 29,980 13.1%
Other (Apple TV, Apple Watch, Beats, iPod touch) 12,863 5.6%
Total 229,234

However, as of 2017, the iPhone represents over 61% of the total sales.

What Is the Razor and Blade Business Model? Apple’s Reversed Razor and Blade Strategy

Microsoft: The octopus of tech!

Founded in 1975 Microsoft has survived a few tech bubbles and thrived. In fact, as of the time of this writing, Microsoft is still one of the most valued companies, with a market capitalization of over seven hundred billion dollars.

That is also because the company has been able to use the excess cash it generated in the last decades to acquire new ventures.

In fact, when Microsoft sniffs a trend, it goes all in. For instance, in 2016 Microsoft bought LinkedIn to enter into the professional network space.

Microsoft is also in the search and advertising industry with Bing. In short, Microsoft has been able to use its cash cow, the Microsoft Office System to diversify its business model.

  Revenues in Bln($)
Microsoft Office system 25,389 28.2%
Server products & tools 21,758 24.2%
Xbox 9,256 10.3%
Windows PC operating system 8,625 9.6%
Advertising 6,971 7.7%
Consulting & product support services 5,588 6.2%
Devices 4,557 5.1%
LinkedIn 2,268 2.5%
Other 5,538 6.2%
Total 89,950

Today Microsoft is quite diversified and it comprises platforms, like LinkedIn.

LinkedIn Multi-Sided Platform Business Model Explained

Amazon: The everything store

Amazon is one of the most disruptive tech companies. It started as an online bookstore to become the everything store; even though most of its revenues come from its store.

There is a growing part of the business that relies on seller services, subscription services (Prime), cloud-based services (AWS). Therefore, Amazon too has a diversified business model.

It is highly probable that the part of the business related to seller services, subscriptions, and cloud-based services will be the most critical part of the company also from the revenue generation standpoint.

  Revenues in Bln($)
Online stores 108,354 60.9%
Physical stores 5,798 3.3%
Third-party seller services 31,881 17.9%
Subscription services 9,721 5.5%
AWS 17,459 9.8%
Other 4,653 2.6%
Total 177,866

Although the cloud services represent a small part of the business as of now. What started as a “side project” might be the most important business segment in the coming years.

Why Is AWS so Important for Amazon Future Business Growth?

Google:  The tech giant that became the web

Google’s business model is based mainly on advertising. Even though the company has placed some bets on products that are not related to its main business model.

Even though Google was a latecomer in the search engine industry, it took it over with the algorithm that changed the web: PageRank.

  Revenues in Bln($)
Advertising 95,375 86.0%
Other (Apps, Google Cloud, Hardware) 14,277 12.9%
Bets (Access, Calico, CapitalG, GV, Nest, Verily,
Waymo and X)		 1,203 1.1%
Total 110,855

As of 2017 86% of the revenues come from the advertising networks of Google. In fact, advertising generates over ninety-five billion dollars in revenues; no doubt that is the cash cow for Google.

It is also true that the company is growing other revenue streams (such as Apps, Google cloud, Hardware).

Those sources will grow more and more in the future as Google will rely less on advertising. Google’s business model, able to create value for several key players – I argue – that is the key ingredient to its success.

The Power of Google Business Model in a Nutshell

Facebook: The social network 

Facebook has been able to tap into the value of its billion users. Facebook‘s business model is based on advertising.

In fact, as of 2017 over 98% of its revenues came from advertising.

  Revenues in Bln($)
Advertising (Facebook and Instagram) 39,942 98.3%
Payments and other fees 711 1.7%
Total 40,653

Today Facebook is a multi-billion company that generates profits at high margins thanks to its newsfeed.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which he brought to reach over half a million business students, professionals, and entrepreneurs in the last year | Gennaro is also Head of Business Development at a tech startup, he helped grow at double-digit rate and become profitable | Gennaro is an International MBA with emphasis on Corporate Finance | Subscribe to the FourWeekMBA Newsletter | Or Get in touch with Gennaro here

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